Should the U.S. do something similar to shame evaders and close loopholes?

600 tax shelter JD Hancock flickr.jpg

Earlier this week, we considered how income transparency could benefit the economy. It could help to reduce income inequality and make the labor market more efficient by encouraging poorly performing workers to move on to different jobs. Could any benefits be derived by publicizing the amount of taxes people pay?

In fact, Norway does both of these things. One nice feature of tax transparency is that it discourages tax evasion. Here's the logic, from Bernard Hickey at interest.co.nz. He wants to apply this concept to New Zealand:

Transparency is the best form of disinfectant on this issue. One country that has a long history of using such a disinfectant to keep its economy strong while being fair is Norway. It publishes for all to see the net worth, income and taxpaid of all taxpayers.

It is controversial in Norway, particularly in an age when data hoarding electronic marketeers can use the information for all sorts of legal (and illegal) sales techniques. But it does mean there is nowhere to hide.

Property developers here who have never paid tax (and there are a few) will be plain for all to see. How would the tax avoiders feel if it was clear to their neighbours and relatives that they weren't pulling their weight?

It would be one way to rebalance the debate and tackle an issue at the heart of New Zealand's fiscal imbalances and social inequality

You could only imagine the fun journalists would have with this information. What portion of income did Goldman Sachs's CEO pay to taxes? How about the biggest hedge fund managers? What about the CEO of General Electric? How about A-Rod?

If taxes paid were publicized, then this would do more than just shame tax evaders. Even in cases where people are legally exploiting the tax laws to their advantage, it would help to create a conversation about the tax code itself. For example, if we learn of some obscure tax credit allows wealthier individuals to consistently avoid paying a major portion of their income taxes, then we could debate whether or not it's good policy.

While a fun idea that has some benefits, the U.S. isn't likely to follow Norway's lead by publicizing taxes. Countless Americans would cry foul due to invasion of privacy issues. In the case of income transparency, voluntary disclosure (which I argued for) could still have significant benefits. But the benefits of tax transparency might be lost if a parallel movement to voluntarily reveal taxes paid took root. People skilled in avoiding taxes would likely also decline to publicize their tax information. Instead, you would only have people who pay their fair share reporting, which would do little to solve the problems that tax transparency could potentially fix.

Image Credit: JD Hancock/flickr